"Major airlines could learn from Jet Blue"

Friday, April 4, 2003

Opinions: STEPHEN MOORE: Major airlines could learn from Jet Blue 
Scripps Howard News Service


Last week, I flew from Oakland to Washington, D.C., nonstop for less than
$200 - or about 1/10th what it costs to fly the same route on one of the
more established airlines. Despite the discounted price, the service was
first class all the way: luxurious leather seats, a personal TV screen on
the back of my seat, and friendly and professional attendants. Flying was
actually a pleasurable experience for once. 

The secret of my success? I flew Jet Blue Airlines. Not only has Jet Blue
proven that these days you still can find courteous airline service at
reasonable prices, but even more remarkable, perhaps, is that this airline
actually runs at a profit. 

Jet Blue's financial success flies in the face (pardon the pun) of the
conventional wisdom these days that there is some law of economics that
requires airlines to lose money. This is an industry in which three of the
largest airlines, American, United and U.S. Airways, are all either in
bankruptcy or teetering on the brink. (U.S. Air is expected to come out of
bankruptcy any day now only so that it will qualify for federal funds.) The
combined losses of just these three airlines in 2003 could reach $8 billion.


American and United are losing some $5 million a day. 

The airline trade association has thus marched upon Washington hat in hand
requesting a $2.8 billion handout from the taxpayers. Congress and the Bush
administration seem inclined to write the check. 

They shouldn't. It's certainly true that both the 9/11 attacks and now the
war in Iraq have hammered the airline industry smack on the chin with all
the force of a Muhammad Ali uppercut during his prime. Air travel is down
and terrorism has added millions of dollars of security-related operating
costs to the airlines. These financial problems have only been compounded by
the recent spikes in energy prices. 

But one must ask what makes the airlines so special that they should receive
a Chrysler-style bail-out from Uncle Sam? There are dozens of major American
industries that have suffered acutely in the new age of terrorism. 

The hotel and resort industries have been inflicted with major financial
losses. Financial services companies are laying off tens of thousands of
workers. The auto industry and other manufacturing firms have had to suck in
their belts and absorb near-catastrophic declines in demand. Telecom firms
have lost two-thirds of their value. 

Are we soon going to see a waiting line of industry lobbyists from the U.S.
Capitol that stretches all the way down Pennsylvania Avenue, all seeking
their own golden corporate-welfare handshake from Congress? 

The airlines already got their golden handshake last year when Congress
authorized $5 billion in cash and $10 billion in loan guarantees. 

Another bailout will have the perverse effect of rewarding the high cost
airlines and punishing their lower cost, more efficient rivals. A bail-out
will only delay precisely what this stodgy industry needs: a cathartic
shake-out in which only the strong survive. That's the brutality, but the
wealth creating magic formula of capitalism. 

But doesn't the war give the airlines a special case for help? No, the
industry's financial ailments are not predominantly a result of the war.
U.S. Air and United were already on the verge of financial collapse even
before 9/11. Union salaries in the big airlines were insanely unsustainable.
It's no coincidence that American and United - the two airlines that have
allowed the unions to negotiate the highest salaries and the highest
benefits - are the two that are hanging on a thread from insolvency. The
downfall of these two once proud and profitable airlines has been many years
in the making. 

So let the free market work. Congress doesn't rush to the aid of the corner
grocer or the small businessman whose business model fails - even though
they too probably have been temporarily adversely impacted by the war. There
is certainly no national security rationale for a multi-billion dollar
bailout. Even if United and American collapse, air service will continue
unabated. 

I've seen the future of this industry. It is Jet Blue and Southwest, Air
Tran and other upstart companies that are low-cost, efficient, and
customer-friendly. These are the new friendly skies, and they don't need a
check from taxpayers to serve their investors or their frequent fliers.


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dc/dcboard.php

*****************************************